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Public Citizen, NCLC Call on Congress Not to Exempt Abusive Debt Collectors From Consumer Protection Law

May 2, 2006

Public Citizen, NCLC Call on Congress Not to Exempt Abusive Debt Collectors From Consumer Protection Law

Victims of “Check Diversion Programs” Speak Out in Advance of Pending Legislation

WASHINGTON, D.C. – Public Citizen and the National Consumer Law Center (NCLC) today called on Congress to block legislation that would grant debt collectors who pose as prosecutors a special, blanket exemption from federal consumer protection law.

The exemption, sought by “check diversion” companies, was added to the Financial Services Regulatory Relief Act (H.R. 3505) and is expected to be considered on Thursday, May 4, by the Senate Banking, Housing and Urban Affairs Committee. Public Citizen and NCLC showcased the stories of several victims of check diversion companies in a telephone conference today in advance of the pending legislation.

Check diversion companies are private, for-profit debt collectors that enter into arrangements with local prosecutors to collect on returned checks. Using the letterhead of the local district attorney’s office, these companies send letters threatening consumers with criminal prosecution and jail unless they pay not only the check amount, but also excessive collection fees, which are then split with the prosecutors’ office. 

Most consumers targeted by check diversion schemes have accidentally bounced checks, usually for small amounts. Under state criminal laws, bouncing a check is not a crime unless the person who wrote the check intended to defraud someone. These companies ignore that requirement of criminal intent, branding anyone who mistakenly writes a bad check as a criminal. The fees collected are as high as $200, even on checks for $10 or less. The companies claim that the fees cover the cost of financial management classes for consumers, but once the fee is paid, the companies do little to compel class attendance and some companies rarely hold classes at all.

Public Citizen, through its Consumer Justice Project, has joined in class action litigation in California and Indiana against some of these private debt collectors, including the largest such company, California-based American Corrective Counseling Services, Inc. (ACCS). The suits are based on the Fair Debt Collection Practices Act, a federal law that prohibits deception or abuse by debt collectors. The check restitution companies, armed with expensive lobbyists, have asked Congress to exempt them from the law. ACCS, the largest of a handful of check diversion companies in the United States, operates in 116 local jurisdictions in 17 states.

“These private companies rent the name and authority of the local government prosecutor and extract illegal collection fees from consumers who have accidentally bounced checks, falsely telling them they will go to jail unless they pay,” said Deepak Gupta, a staff attorney with Public Citizen. “These unscrupulous debt collectors are the last ones Congress should exempt from federal consumer protection standards.”

Simona Pickett, a Middle River, Md. resident and employee at the U.S. Department of Justice who participated in the telephone conference, was threatened by a check diversion company when she wrote a $21.66 check to a local supermarket that was returned. Picket had recently changed her bank account, not knowing that her overdraft protection was not also transferred. She received a letter from the “District Attorney Bad Check Restitution Program” demanding the check amount plus $185 in fees and ordering her to attend a diversion class. Fearing jail she paid the fees, and then was told she would not have to attend the class.

Lois Artz, a 70-year-old retired bank employee in Petaluma, Calif., who also participated in the press conference, was pursued by a check diversion program when she wrote a $28 check to a local store that did not clear. Artz lives on a small, fixed income and cares full-time for her terminally ill daughter. She received a letter from the “District Attorney Bad Check Restitution Program” demanding about $200 to avoid criminal prosecution. Terrified of going to jail, she called the program – actually the private company ACCS – and arranged a payment plan, for which ACCS charged an additional $25 fee. She was forced to pay for a doctor’s visit to obtain a note excusing her from attending the class and worked on a 48-page home study book over a number of weekends. 

Kristy Schwarm, a mother of six in Ukiah, California, wrote a check to a local supermarket that did not clear. Due to medical and other expenses, she was unable to pay the check and ultimately was forced into bankruptcy. Kristy received a series of letters from the “District Attorney Check Restitution/Prosecution Program” threatening arrest and prosecution if she did not pay more than $130 in fees and attend a diversion class. Interestingly, she could avoid the diversion class and the $85 class fee if she paid $45 in other fees within 15 days of the first letter. This particular debt collector, District Attorney Technical Services, Ltd., holds diversion classes only intermittently and does not keep track of who attends. 

“Criminal diversion is fine for real criminals, but the victims of this diversion scheme are typically innocent,” said Paul Arons, a private consumer attorney from Friday Harbor, Wash., who has brought several suits against ACCS. “It is not against the law to make a mistake in balancing your checkbook, yet those are the people these companies go after. You shouldn’t be threatened with jail and have to pay $170 in fees just because you forgot to write down an ATM withdrawal.”

Public Citizen Litigation Group’s Consumer Justice Project litigates individual and class action cases that offer a chance to establish important precedents on behalf of consumers. For more information on the check diversion class action litigation, including the legislation under consideration and victims’ stories and contact information, click here.